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Fairpoint creditors file suit against Verizon

FairPoint Communications’ 2008 purchase of New England landlines from Verizon Communications is the subject of a $2 billion fraudulent transfer lawsuit, filed late last week by a litigation trust formed by FairPoint creditors, who claim that the $2.3 billion acquisition forced FairPoint into bankruptcy just 18 months later. North Carolina-based FairPoint, which emerged from bankruptcy in January but continues to struggle financially, provides wireline telephony and Internet services to nearly two million customers in 18 states. Filed with the Mecklenburg County Court in Charlotte, North Carolina, the lawsuit alleges that Verizon lured FairPoint into a “disastrous” purchase that critics warned at the time would saddle FairPoint with an excessive debt load and with the burden of an additional 1.6 million access lines the company was ill equipped to maintain. Describing Verizon’s New England network as a collection of “antiquated landlines and DSL technology that was already disfavored by customers and expensive to maintain,” the complaint asserts that FairPoint “paid a princely sum for a collection of inferior assets that had no future.” The lawsuit further charges that Verizon “structured the transaction so that it could not only continue to compete with the combined entity in the relevant states after the transaction, but also so that it could crush the new competition created by the transaction.” Verizon was also accused of failing to disclose that the landlines acquired by FairPoint were losing customers “at a much faster rate” than the numbers on which FairPoint had based its projections. Vowing to “contest the suit vigorously,” Verizon defended the 2008 deal as one that “occurred after thorough due diligence on the part of FairPoint . . . and approvals from telecommunications regulators in Maine, Vermont and New Hampshire.”